The Anti-Unfair Competition Law of the People’s Republic of China was revised at the 30^th Session of the Standing Committee of the 12^th National People’s Congress of the People’s Republic of China on November 4, 2017. This Law will be implemented as of January 1, 2018, and is revised for the first time after 24 years since the Anti-Unfair Competition Law of the People’s Republic of China was enacted in 1993.

The revisions cover a wide range and have great impacts. Chang Tsi & Partners would like to comment on the IP related amendments based on our practice as follows:

I. General provision

The relevant provisions stipulate in the old Law as follows:

Article 2 A business operator shall, in his market transactions, follow the principles of voluntariness, equality, fairness, honesty and credibility and observe the generally recognized business ethics.

“Unfair competition” mentioned in this Law refers to a business operator's acts violating the provisions of this Law, infringing upon the lawful rights and interests of another business operator and disturbing the socio-economic order.

“A business operator” mentioned in this Law refers to a legal person or any other economic organization or individual engaged in commodities marketing or profit-making services (“commodities” referred to hereinafter includes such services).

The relevant provisions stipulate in the new Law as follows:

Article 2 While carrying out production or business activities, a business operator shall follow the principles of voluntariness, equality, fairness, and good faith, abide by laws and observe business ethics.

For the purpose of this Law, unfair competition refers to any business operator’s act of participating in the production and operation activities in violation of the provisions herein to disrupt the competition order in the market and infringe the legitimate rights and interests of other business operators or consumers.

For the purpose of this Law, a business operator refers to a natural or legal person or any other unincorporated association engaged in the manufacturing or trading of commodities or the provision of services (“commodities” referred to hereinafter include services).

Comments from Chang Tsi & Partners:

Article 2 of the Anti-Unfair Competition Law provides general provisions, which reflects the overall tendency of anti-unfair competition acts. This Article is often cited in the judicial practice and plays a decisive role in this Law.

In the old Law, unfair competition is defined as follows: “a business operator's acts violating the provisions of this Law, infringing upon the lawful rights and interests of another business operator and disturbing the socio-economic order”, and the key points thereof are as follows: “infringing upon the lawful rights and interests of another business operator and disturbing the socio-economic order”. The old law focuses on protection of business operators.

In contrast, unfair competition in the new Law is defined as follows: “in violation of the provisions herein to disrupt the competition order in the market and infringe the legitimate rights and interests of other business operators or consumers”. Literally, the new Law protects interests of business operators, and meanwhile protects the market competition order and interests of consumers.

Accordingly, whether or not an act constitutes an unfair competition act in future practice, not only depends on the factor of the impact on business operators but also depends on the factor of the interests of consumers and the overall market competition order.

II. Confusion of unregistered business marks

The relevant provisions stipulate in the old Law as follows:

Article 5 A business operator shall not harm his competitors in market transactions by resorting to any of the following unfair means:

(1) counterfeiting a registered trademark of another person;

(2) using for a commodity without authorization a distinctive name, packaging, or tradedress of well-known goods, or using a name, packaging or tradedress similar to that of another's well-known goods, thereby confusing the commodity with that well-known goods and leading the purchasers to mistake the former for the latter;

(3) using without authorization the name of another enterprise or person, thereby leading people to mistake their commodities for those of the said enterprise or person; or

(4) forging or counterfeiting authentication marks, famous-and-excellent-product marks or other product quality marks on their commodities, forging the origin of their products or making false and misleading indications as to the quality of their commodities.

The relevant provisions stipulate in the new Law as follows:

Article 6 A business operator shall not perform any of the following confusing acts that will enable people to mistake its products for another business's products or believe certain relations exist between its products and any business's products,

1. unauthorized use of a mark that is identical or similar to the name, packaging or tradedress of another business's commodity, which has influence to a certain extent;

2. unauthorized use of another business's corporate name (including its shortened name, trade name, etc.), the name of a social group (including its shortened name, etc.), or the name of an individual (including his or her pen name, stage name, etc.), which has influence to a certain extent;

3. unauthorized use of the main part of domain name, website name or webpage, which has influence to a certain extent; and

4. other confusing acts that are sufficient to enable people to mistake its products for another business's products or believe certain relations exist between its products and any business’s products.

Comments from Chang Tsi & Partners:

The confusing acts of unregistered business marks are mainly stipulated in Article 5 of the old Law. The registered trademarks and unregistered business marks in the old Law are included in one Article, and the old Law lacks general provisions. Regarding this defect, the new Law makes the following adjustments:

1. The protective provision regarding “registered trademark” is deleted, which draws a bright line between the Trademark Law and the Anti-Unfair Competition Law;

2. The provision regarding “distinctive name,packaging,tradedress of well-known goods” stipulated in the old Law is revised to “the name, packaging or tradedress, which has influence to a certain extent”. Such amendment avoids “famous commodity” from being dissimilated to “title of honor”;

3. The provision regarding “the name of another enterprise or person” stipulated in the old Law is revised to “business’s corporate name (including its shortened name, trade name, etc.), the name of a social group (including its shortened name, etc.), or the name of an individual (including his or her pen name, stage name, etc.), which has influence to a certain extent”. Chang Tsi & Partners believes that such amendment clarifies that the business's corporate name includes its shortened name and trade name, and provides a more specific legal basis for rights protection by obligees;

4. The provisions regarding “the name, packaging or tradedress of another business’s commodity” and “business’s corporate name or the name of an individual” mentioned in the old Article are reserved. The protective provision regarding “the main part of domain name, website name or webpage,etc” is newly added to the newly revised Anti-Unfair Competition Law to adapt to fast-changing society;

5. In the new Law, the old provision regarding forging or counterfeiting “product quality marks” is deleted, and a general provision regarding “other confusing acts” is newly added. The old provision regarding “product quality marks” is a repetition of false publicity in Article 9 of the old Law. Deleting this Article in the new Law makes the overall law structure more concise and clear;

Chang Tsi & Partners believes that, on the one hand, the new Law enriches particular examples of unregistered business marks; one the other hand, the new Law intends to cover other potential confusing acts of business marks in the future by means of the general provision. The design of this new Article more benefits obligees in determining enforcement routes.

Regarding how to interpret and prove the provision in Article 6 of the new Law, i.e. “has influence to a certain extent”, there is no new judicial interpretation or typical case. Chang Tsi & Partners thinks that the court is likely to apply the judicial practice regarding “famous commodity” under the old Law system for evidence presentation. Chang Tsi & Partners will pay close attention to the implementation of the Article.

III. False Publicity

The relevant provisions stipulate in the old Law as follows:

Article 9 A business operator may not, by advertisement or any other means, make false or misleading publicity of their commodities as to their quality, ingredients, functions, usage, producers, duration of validity or origin.

An advertisement agent may not act as agent for, or design, produce or release a false advertisement while he clearly knows or ought to know its falsehood.

The relevant provisions stipulate in the new Law as follows:

Article 8 A business operator shall not conduct commercial promotions for the performance, function, quality, sales status, user evaluation, honor received concerning its products in a false or misleading manner, attempting to cheat or mislead consumers.

A business operator shall not assist another business operator with its commercial promotions in a false or misleading manner by way of organizing false transactions or by other means.

Comments from Chang Tsi & Partners:

Regarding the provisions on false publicity, major amendments are mainly made to the new Law as follows:

1. Extending the scope of the operators: the subjective elements of the operators are adjusted, and the wording “as advertisement agent” in the old Law is deleted and collectively referred to as “business operator”. Such adjustment can extend the scope of the subject of the unfair competition to all subjects that assist in implementing misleading publicity. It does not limit to “an advertisement agent” as stipulated in the old Law.

2. Adjusting the exemplary provisions: expressions like “function, sales status, user evaluation, honor received concerning the products” are added to the specific manifestations of false publicity according to social practices, thereby demonstrating the change with the times; and

3. Adjusting the expression “make false or misleading publicity” to “commercial promotions … in a false or misleading manner, attempting to cheat or mislead consumers”: such amendment incorporates the provisions “commercial promotions in a false manner to mislead or cheat consumers” and “commercial promotions in a non-false but misleading manner” both into the scope of the Anti-Unfair Competition Law. Such amendment, which incorporates the experience accumulated in judicial practices, guard the order of competition and the interests of consumers and protects the interests of operators with good faith.

As such, the new Law, which extends and adjusts both the subjects and acts of false publicity, benefit obliges to claim and enforce their rights.

IV. Prize-attached Sale Activities

The relevant provisions stipulate in the old Law as follows:

Article 13 A business operator shall not engage in any of the following prize-attached sale activities:

(1) prize-attached sale conducted by such deceptive means as falsely declaring to have prize or intentionally making a designated insider win the prize;

(2) prize-attached sale employed as a means to sell goods of low quality at a high price; or

(3) prize-attached sale in form of lottery-drawing with the highest prize exceeding CNY, 5,000.

The relevant provisions of the new Law as follows:

Article 10 The prize-attached sale activities of a business operator shall not involve the following situations:

1. making sales with prizes attached without expressly specifying the prize types, terms for collecting prizes, the amounts of cash or the goods as prizes, or other related information that will affect the collection of prizes;

2. making sales with prizes attached in a fraudulent manner by falsely claiming the existence of prizes or intentionally causing internally-chosen persons to win the prizes; and

3. making sales with prizes attached in the form of a lucky draw where the amount of the highest prize exceeds CNY 50, 000.

Comments from Chang Tsi & Partners:

Regarding the provisions on prize-attached sale activities, major amendments are mainly made to the new Law as follows:

1. Raising the highest prize from CNY 5,000 to CNY 50,000. Undoubtedly, in terms of the subjects conducting prize-attached sale activities in China, the present provision increases the free range to select prizes, and it is helpful for firms to solicit business by means of prize-attached sale.

2. Deleting the previous provision “prize-attached sale employed as a means to sell goods of low quality at a high price” in the old Law, and replacing it with the present provision “without expressly specifying the information that will affect the collection of prizes”. The provision amendment of the new law responds to the commercial promotion practices. With the development of Chinese economy, collecting prizes is more frequently influenced by the implicit information of the prize-attached sale than the behavior of promoting “goods of low quality at a high price”.

V. Legal Liability for Infringement of Unregistered Trademark

The relevant provisions stipulate in the old Law as follows:

Article 21.2 In case a business operator uses for a commodity without authorization the name, package or decoration of a famous commodity or the name, package or decoration similar to that of a famous commodity and thereby confuses the commodity with another's famous commodity and leads the purchasers to mistake the former for the latter, the supervision and inspection department shall order the business operator to stop the illegal act and confiscate the illegal earnings and may, in light of the circumstances, impose a fine of not less than one time but not more than three times the illegal earnings; if the circumstances are serious, his business license may be revoked; and if the commodities sold are fake and inferior, and the case constitutes a crime, he shall be investigated for criminal responsibility according to law.

The relevant provisions stipulate in the new Law as follows:

Article 17.4 Where a business operator violates the provisions stipulated in Article 6 or Article 9 herein, and it is truly difficult to determine the actual losses suffered by the obligee as a result of the infringement or the benefits obtained by the infringer from the infringement, the people's court shall award the obligee less than CNY 3 million in damages, depending on the seriousness of the infringement.

Article 18 Where a business operator violates Article 6 herein by performing any confusing act, the supervision and inspection authority shall order it to cease the offense, and confiscate its illicit commodities. If the illicit turnover exceeds CNY50, 000, it shall be fined up to five times the illicit turnover. If there is no illicit turnover or the illicit turnover is less than CNY50, 000, it shall be fined up to CNY250, 000; where the circumstance is serious, it business license shall be revoked.

Where a corporate name registered under a business operator violates the provisions of Article 6 herein, the business operator shall go through formalities to change its registered corporate name promptly. Prior to the change of the corporate name, the original corporate registration authority shall use the unified social credit code in lieu of its corporate name.

Comments from Chang Tsi & Partners:

1. Imposing administrative damages for the acts of violating unregistered trademarks. The legal liability thereof is changed from “a fine of not less than one time but not more than three times the illegal earnings” in the old Law to “if the illicit turnover exceeds CNY 50, 000, it shall be fined up to five times the illicit turnover. If there is no illicit turnover or the illicit turnover is less than CNY 50, 000, it shall be fined up to CNY 250, 000” in the new Law, and the amount and range of the fine are then explicitly raised.

2. The new law clearly stipulates that “less than CNY 3 million in damages” with respect to civil compensation for damages, while the old Law didn’t quantify the subject compensation and damages. According to the new Law, if it is hard to determine the infringement losses or the benefits obtained by the infringer, the obligee can be awarded the damages less than CNY 3 million. As indeed favorable news for the obligees, the present provision should be wisely applied in order to obtain reasonable compensations.